A borrower is generally considered to be in default if a claim is paid on a loan during the two-year cohort period. Due to a 1998 amendment to the Higher Education Act (HEA) that changed the definition of default from loans delinquent 180+ days to those delinquent 270+ days, the timeframe for considering a borrower to be in default has increased. As a result of these changes, which first affected the FY 1998 cohort, some defaults that used to occur within the two-year period are now occurring outside the two-year period and thus are not included in the official CDR:
• Before 1998, it would take about 330 days for a borrower to be considered in default (60 days from entering repayment until the first payment is due + 180 days delinquency + about 90 days to pay the claim = 330 days).
• Now it takes about 420 days for a borrower to be considered in default (60 + 270 + 90 = 420). Since 420 days are more than a year, it is possible for some of the last borrowers who enter repayment in the cohort to make no payment before the end of the two-year period, and yet not be considered in default (ED-OIG 2003).
ED’s Office of Inspector General (OIG) has determined that this change in definition has materially reduced CDR: the official CDR for the FY 1999 cohort was 5.7 percent versus 6.6 percent under the old definition. The OIG also found that official CDRs do not provide sufficient information to reflect general trends in defaults, in particular, because they do not capture information on defaults beyond the two-year cohort period (ED-OIG 2003).
Exclusion of Borrowers in Deferment and Forbearance
Borrowers may be eligible for deferment or forbearance if they are unemployed, have health problems, or meet certain other criteria. Borrowers in deferment or forbearance are considered in repayment and therefore are included in the denominator of the CDR, but, because they do not have to make payments and may not have been subject to the risk of default, may be excluded from the numerator. As a result, the number of borrowers who default is divided by a number that is larger than the total number of borrowers who are subject to risk of default, potentially lowering a school’s CDR (ED-OIG 2003).
From FY 1996 to 1999, the percent of borrowers in deferment or forbearance more than doubled (from 10.1 percent to 21.7 percent). If these borrowers were excluded from the denominator of the official CDR, the FY 1999 CDR would have been 7.3 percent rather than 5.7 percent (ED-OIG 2003).